This invention relates to the securities financing and lending activities within the global capital markets system.
At present time, securities lenders and borrowers are matched in a relatively inefficient process that concentrates on personal relationships, credit requirements and securities availability. Most principals in the securities financing markets would prefer to operate initially on the basis of institutional relationships, trading styles, price sensitivities and risk tolerances. Unfortunately, such arrangements are not possible using solely the intermediary structure of custodian banks, lending agents and prime brokers. The banks and agents are shielded from the confidential preferences of the borrowing principals by prime brokers and the latter are shielded from the confidential preferences of lending principals by agents and banks. A way of structuring transactions among principal counterparties based on preferences, while maintaining confidentiality is needed. Moreover, the preferential structure must be maintained within the current infrastructure of the market system since the latter is vastly more efficient when it exploits the strengths of the existing intermediary networks. Finally, the system of preferences will also create the likelihood of stimulating the entry of additional market participants who are currently reluctant to participate fully in the securities financing markets.
Some potential lenders of securities do not make portfolios available for lending out of fear that borrowers will use those resources in ways deleterious to the lender's long-term investment intentions. Some potential borrowers of securities do not enter the market for fear that lenders will recall positions before the economic benefit of their trades is realized. Current market participants rarely achieve the most efficient organization of their needs and availabilities, either through opacity of the investment market or excessive segmentation of desired security positions. In addition, market regulators are presently concerned that excessive risks are being accepted by intermediaries who are not fully cognizant of the potential credit, liquidity and operational risks that are occluded by relationships organized on credit and availability algorithms.
Accordingly, new methods and systems of matching and qualifying securities lenders and borrowers are required. This invention is intended to build upon the existing strengths of the institutional agency and brokerage systems of capital market participants, in adding a layer of trade financing efficiency through pre-qualifying and matching securities lenders and borrowers based upon their demonstrated preferences and counterparty designations.